Detroit to reveal new bankruptcy restructuring plan Monday

7:48 PM, March 27, 2014

In his first restructuring proposal, Detroit emergency manager Kevyn Orr proposed investing $1.5 billion over 10 years to improve services. The City of Detroit plans to file a new proposal on Monday. / Detroit Free Press file photo

The City of Detroit plans to file a new bankruptcy restructuring proposal Monday, about two weeks before a court fight over whether the city has given creditors enough information to cast an informed vote on the plan.

The city’s bankruptcy lawyers said in a court filing that they will file an amended plan of adjustment and disclosure statement — the legal terms for a Chapter 9 bankruptcy restructuring plan.

The new documents could include new offers to creditors. They could also include different financial projections that would affect payouts to creditors and investments in city services.

In his first restructuring proposal, Detroit emergency manager Kevyn Orr proposed investing $1.5 billion over 10 years to improve services, such as a massive blight removal project and installation of new information technology to improve public safety.

The city hopes to improve the lives of its 700,000 residents by slashing debt, thus freeing up cash to invest in services.

But Orr has angered retirees by proposing cuts to pensions and health care benefits. He proposed varying pension cuts depending on whether retirees agree to accept a deal in which foundations, the State of Michigan and the Detroit Institute of Arts would inject $815 million to reduce the cuts.

Orr proposed 26% monthly pension cuts for general retirees and 6% cuts for police and fire retirees if the pensioners accept the so-called grand bargain, which would allow the DIA to spin off as an independent institution and would require pensioners to give up their right to sue the state over pension cuts.

Those cuts would rise to 34% and 10%, respectively, if the pensioners vote against the deal. Under both scenarios, the city proposed eliminating annual cost-of-living adjustments (COLA) in retiree pensions, which deepens the cuts over time. Retirees would also endure significant health care cuts.

Orr offered 20 cents on the dollar for general obligation bondholders and full payouts to secured bondholders.

The new plan of adjustment is likely to incorporate the city’s recently renegotiated settlement with Bank of America Merrill Lynch and UBS, which agreed to accept $85 million to eliminate a $288-million pension debt interest-rate bet that helped plunge Detroit into bankruptcy.

The city had previously proposed settlements of $230 million and $165 million to get rid of the swaps, but Judge Steven Rhodes said those offers were too generous for the banks. He rejected those deals and said the swaps might have been illegal.

The city signed documents with the banks Wednesday to finalize the deal, which still must be approved by Rhodes. The judge will conduct a hearing Thursday to consider approving the new deal, which has drawn objections from major creditors such as AFSCME Council 25, bond insurer Syncora and the city’s retiree committee.